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LATEST NEWS UPDATES | Finding a fix for food security by Ashok Khemka

Finding a fix for food security by Ashok Khemka

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published Published on Jun 29, 2010   modified Modified on Jun 29, 2010

Furious debates among policymakers about the proposed national food security law largely revolve around its financial repercussions. The Planning Commission is finally coming around to accepting the Tendulkar Committee’s estimates of 37.2 per cent BPL population or 8.5 crore BPL households. The fiscal burden in implementing the food security law for 37.5 per cent BPL population, with each household being provided 35 kg food grains, is estimated to be Rs 40,400 crore. The present food subsidy to FCI is Rs 60,000 crore.

To better understand the implications of the food security law, states can be broadly categorised into food deficit/ net food importing states and food surplus/ net food exporting states. While some of the net food importing states such as Bihar have demanded the subsidy in cash as food coupons to the BPL households rather than in kind, the primary interest of the net food exporting states like Punjab and Haryana is to safeguard farmers’ interests in terms of remunerative prices for their produce at the time of harvest. So the interests of the food surplus states lie in maintaining the status quo, i.e., doling out food subsidy in kind rather than in cash. These two conflicting interests need to be reconciled in any efficient implementation of the Right to Food law. This is best implemented if genuine public-private competition is introduced in the mandis at the time of procurement of the foodgrains from the farmer-producers and also at the point of distribution to the consumers. As of today, Food Corporation of India (FCI) is the key statutory implementing agency for both procurement and distribution and here lies the reason for the bottomless pit of national food subsidy. For more effective implementation of the food security law, the distribution function needs to be hived off, with the aim of encouraging public-private competition in both, and also to introduce the element of consumer choice to increase her net welfare.

To address the needs of 8.5 crore BPL households with the present food subsidy budget of Rs 60,000 crores, the average food subsidy per BPL household works out to be Rs 7,060 per annum. This translates to a subsidy of Rs 16.80 per kg of foodgrain for a monthly foodgrain allocation of 35 kg. This level of subsidy is adequate if the average market price of foodgrains is Rs 20 per kg or less. No wonder Nitish Kumar, CM of a net food importing state, wants the food subsidy to be doled out in cash as food coupons. This gives the power of choice to the BPL household to choose in the market between the PDS shop and the private retail shops.

However, the concerns of net food exporting states like Punjab, Haryana, UP, AP and MP in protecting the interests of the producer-farmers is not addressed without state intervention at the time of arrivals in the mandis. State intervention is necessary to ensure minimum support prices for the produce. How can this be achieved with the same level of budgetary support if cash or food coupons are distributed to the BPL consumers? I recommend that BPL households be given a choice in the form of food coupons entitling them to the monthly quota of food grains at Rs 3 or Rs 2 (under Antyodaya Anna Yojna Scheme) from the PDS shop or in case she does not find value for money in the PDS shop, she can choose to encash the food coupon at a private retail shop, who in turn would be reimbursed from the nearest authorised post office or bank. At Re1 per kg of budgetary support for procurement function to feed the 8.5 crore BPL population at 35 kg per month, the procurement agency of the government would need an annual budgetary grant of Rs 3,570 crore. If it is assumed that a support of Rs 3 per kg is adequate to the procurement agency for it to ensure that the prices of the produce do not fall below the minimum support prices, an annual budgetary support of Rs 10,710 crores would be sufficient to procure the required annual quantity of 35.7 million tonnes of food grains for the BPL households. This budgetary support to its own procurement agency would ensure the supply of food grains to every corner of the country through the PDS shops, ensuring competition in both procurement and distribution operations. The balance budgetary support of Rs 49,300 crores may be kept as distribution subsidy, translating to an annual entitlement of food coupons worth Rs 5,800 per BPL household or a support level of Rs 13.80 per kg of food grain. This support would be adequate if the average market prices are Rs 17 per kg or less. With the distribution agency of the government honouring the food coupons at the price of Rs 3 per kg, the consumer would encash the food coupons at the private outlet only if she gets better value for money.

In effect, the distribution and procurement agencies of the government survive in the marketplace on their own strength. The consumer would get greater choice, better quality and competitive prices. Enabling encashment of food coupons at private retail outlets would bring greater competition at the time of procurement in the food surplus states too. However, the bottomline for any successful food security legislation lies in separating the procurement and distribution arms of FCI and freeing them of bureaucratic and ministerial control. The bottom of the pyramid can become a source of rapid econo-mic change and the key is to treat poor people with respect, as consumers.


The Indian Express, 23 June, 2010, http://www.indianexpress.com/news/finding-a-fix-for-food-security/637178/0


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